Unemployment in shock fall to 5.8%

Business Reporter

A new direction ... Economists were expecting the unemployment rate to rise to 6.1%. Photo: Louise Kennerley

The surprise recovery in jobs growth last month has increased expectations that the jobless rate may have peaked and that a rise in interest rates could start as soon as this year.

Even so, a further rise in the level of the Australian dollar to an almost five-month high on the back of the jobs data would also see the central bank remain cautious about being too aggressive about monetary policy, as it could place further upward pressure on the local currency.

The positive tone in the breadth of the labour market data and ongoing signs of strength in the broad activity indicators may well prompt a discussion over whether we have see the peak for the unemployment rate

The unemployment rate fell to a surprise 5.8 per cent in March from a decade-high of 6.1 per cent in February, with 18,100 jobs added to the economy in a further sign that the sluggish labour market could be turning the corner.

Full-time positions fell by 22,100 but part-time jobs rose by 40,200, the Bureau of Statistics said in figures published on Thursday.

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The participation rate fell to 64.7 per cent and the aggregate monthly hours worked increased by eight million hours to 1617.2 million hours.

"I think the turnaround in hiring is consistent with the improvement we've seen in the business surveys and the jobs ads [data]," Barclays' chief economist for Australia Kieran Davies said.

"Companies were reluctant to take on people last year but they are feeling more positive about hiring this year."

Economists had expected the jobless rate to come in at 6.1 per cent - the highest since July 2003.

The Australian dollar surged on the news, jumping over half a cent to reach its day's high of 94.40 US cents. It was fetching 94.09 US cents in late trade.

State-by-state breakdown

NSW's jobless rate fell to a seasonally adjusted 5.3 per cent from 5.7 per cent in February, while Victoria's unemployment rate remained stable at 6.4 per cent.

Mining powerhouse Western Australia registered the biggest fall in March from 5.9 per cent to 4.9 per cent. Queensland also saw its jobless rate ease to 6.1 per cent from 6.2 per cent.

But South Australia's unemployment rate rose from 6.7 per cent to 7.1 per cent, while Tasmania continued to record the highest rate in the country at 7.5 per cent, up 0.2 percentage points from February.

In trend terms, the Northern Territory and ACT's jobless rate fell by 0.1 percentage points to 3.8 per cent and 3.4 per cent respectively.

ANZ's head of Australian economics, Justin Fabo, said a key uncertainty for the jobs outlook would be how many positions might be lost as the mining investment boom fades.

"The improvement in a range of forward-looking labour demand indicators suggests that employment growth will remain solid in coming months," Mr Fabo said.

"The key uncertainty is by how much the strengthening in jobs growth will be held back by job shedding as mining projects wind up."

Has the jobless rate peaked?

The unexpected fall in the unemployment rate could suggest it has peaked for this economic cycle, analysts said.

"The positive tone in the breadth of the labour market data and ongoing signs of strength in the broad activity indicators may well prompt a discussion over whether we have see the peak for the unemployment rate for this cycle," the Royal Bank of Canada Capital Markets' Su-Lin Ong said.

Financial markets increased their forecasts of a rate hike, pricing in an 88 per cent of a 25 basis points rise in the cash rate over the next 12 months after the new figures were released, according to Credit Suisse data. It was the highest forecast of a rate hike since early November.

Recent forward job indicators have already been pointing to improving conditions in the labour market. On Monday, March job advertisement figures from ANZ showed an increase for the third-straight month, amid signs the demand for labour is strengthening. Job ads for March lifted by 1.4 per cent, after a 4.7 per cent increase in February, the monthly ANZ survey showed.

Last week, Bureau of Statistics data found job vacancies rose by 2.6 per cent in the three months to February, as available positions in public and private sectors lifted after weakening in the previous quarter.

But while economists said a peak in the jobless rate could be close or have past, it would not rapidly fall due to the continued strong growth in population.

Westpac senior economist Justin Smirk said a possible peak in the jobless rate could come about through further falls in the participation rate - the percentage of people either in work or looking for work, which registered a slide from 64.9 per cent in February. The participation rate has been declining in part due to the exit of older workers from the labour force.

"If there is a resumption of the trend decline in participation, then the requirement is much less than that. If this is the case, then it is possible we may have seen the peak in the unemployment rate," Mr Smirk said. The trend participation rate remained stable at 64.7 per cent in March.

Chance of an earlier rate rise?

The Reserve Bank of Australia would be watching the next two months of data "to be convinced that a new trend is established", TD Securities head of Asia-Pacific research Annette Beacher said, adding that "consecutive upbeat Australian employment reports supports [an] RBA hike by year-end".

Mr Davies said the jobless rate could rise further, but peak in the middle of this year instead of in early-2015 as the RBA had been expecting.

The earlier turnaround could also mean the central bank might raise interest rates sooner-than-expected, he added.

But a rate hike in the near-term was unlikely as that could further fuel the Australian dollar's rise.

"The bank cannot do much about the higher exchange rate as a strong housing market precludes a rate cut, although it might complain a little more about the currency," Mr Davies said.

The latest figures came after February's surprise 80,500 jump in full-time positions.